An F in Economics

I recall a friend of mine, wise beyond his years, who has since gone on to become a CPA at a large hedge fund extolling the virtues of early saving. In math textbook-like examples, he explained how two twins, one who saves between the ages of 18-26 and never saves again and one who saves from 26 to 55 fare at the end of the day. The early saver beats the later saver practically to the point of it being no contest. “The marvels of compounded interest and early savings,” I recall thinking.

The thing is, young people can easily shut down when they are told about something in the drabbest of didactic fashions. But was that even the case? Had they been taught about IRAs and just become disengaged because their professor was not John Keatingesque enough? No, they had not been taught nor told about them at all and that is a major problem.

There was a palpable sense of worry both before and after the financial crisis that young people were graduating college without the proper knowledge needed build healthy finances for themselves and their families. I recall being a senior in high school and attending a mandatory class called Independent Living. The curriculum ranged from how to write a check to how to sew on a button. Looking back, the class was highly beneficial and I think that an individual financial literacy class should be mandatory for seniors in high school and should be revisited and expanded upon when they are seniors in college. It could tackle myriad topics, among them the dangers of credit cards and the crippling effect they are wreaking on young people.

I decided to conduct my own poll and I asked 10 college seniors who will be graduating next month if they have ever heard of a Roth IRA and if they had, did they know the difference between it and a regular IRA. All had heard of an IRA but had a hard time explaining details and only one knew the full definition of a Roth.

I know that there is a dearth of knowledge among young people when it comes to their own personal finances. The fact that students can explain Keynesian economic theory and not have ever heard of a Roth IRA should raise more than a few eyebrows and cause concern about the practicality of college curriculums and the repercussions this will have on the industry and society as a whole.